ASX Stock Pairs Trade Journal

skc · 12 February 2015

VSntchr said:
Well I took on the risk of the curveball. Scaled in with three parcels today...and as the day wore on I got a bit worried as to why FDC was falling so far...although the whole sector was weighed a fair bit today.
Ended up closing it out in the auction and captured 0.70%.

Still some big divergences that are not closing, CQR popped up early and I thought perhaps it was starting to catch up but then got smashed all day and divergence got even bigger.

IOF has stopped outperforming but failing to fallback as of yet.

Directionally speaking, I thought that MGR at 2.18 was a pretty good chance for a short this morning although I didn't manage to hold it down to the lows..I was happy to cover at 2.13. The report had nothing outstanding and guidance was only narrowed rather than upgraded. Not much to justify a surge in addition to the oustanding run it has already had.

CSR was being kind this week, until it roared back up today...trade is at time expiry for me now so that will be a big loss to close out tomorrow

Plenty of seemingly random things going on in the REIT sector... collectively they are, along with the yield play, taking a breather. They have run too far, even with the prospect of another rate cut or 2. Like TCL... upgrade distribution from 39 to 39.5c. Come on... that's barely a rounding error.

To illustrate... GMG is yielding 3.31% (or 1% above official interest rate) and looking at say 8% growth. Even if you allow interest rate to stay low for 3 years and growth to remain at that pace, can you actually make money by buying today?

If the spread remains and the interest rate goes back to a more normal 5% in 3 years time, GMG investors will demand 6% yield. But the dividend amount will only 29c in 3 years (from 23c today). GMG's share price @ 29c dividend and 6% yield = $4.83... compared with $6.49. May be this is flawed thinking but I really think it's being seriously mis-priced, unless interest rate stays low forever.

Anyhow... all out of pairs now. Will focus on trading the reports.

skc · 12 February 2015

And this probably explains the premium of NVN vs FDC.

http://www.afr.com/p/opinion/cs_run_numbers_on_stockland_novion_hPGcGcVdptdKadToqULLvL

Stockland could afford to trump Federation Centres’ bid for shopping centre owner Novion Property Group with a scrip and cash offer that would add 3.4 per cent to Stockland’s earnings per share.

That’s the view from Credit Suisse’s property analysts who said Stockland had greater capacity than Federation Centres to debt fund any deal and would be able to extract just as many synergies.

Credit Suisse analysts ran the numbers on Thursday and said Stockland could afford to put forward a $2.67 cash and scrip bid, worth 5 per cent more than Federation Centres’ proposed deal.

SilverRanger · 12 February 2015

skc said:
And this probably explains the premium of NVN vs FDC.

http://www.afr.com/p/opinion/cs_run_numbers_on_stockland_novion_hPGcGcVdptdKadToqULLvL

Thanks. Yes that would explain the premium a little. Now let's hope I get to milk more than the 5% they suggested before the offer comes

SilverRanger · 18 February 2015

SilverRanger said:
Thanks. Yes that would explain the premium a little. Now let's hope I get to milk more than the 5% they suggested before the offer comes

The takeover premium now at 3.8%, looks like the market is dead certain on a competing bid. I wonder how much more risk is there to average in now. On the bright side, hit a home run with TOL!

VSntchr · 18 February 2015

SilverRanger said:
The takeover premium now at 3.8%, looks like the market is dead certain on a competing bid. I wonder how much more risk is there to average in now. On the bright side, hit a home run with TOL!

You had TOL open?
Your monthy PnL would be looking pretty green!

skc · 18 February 2015

SilverRanger said:
The takeover premium now at 3.8%, looks like the market is dead certain on a competing bid. I wonder how much more risk is there to average in now. On the bright side, hit a home run with TOL!

50% premium. That's a 2-month maker!

skc · 20 February 2015

skc said:
To me the pairs trade is on long FDC / short sector in general. That way you mitigate the specific risks of NVN getting an alternate bid, although also missing out on the gains if the bid is dropped.

Worked pretty well. Now whether one should have held through the reports is another matter.

VSntchr · 20 February 2015

skc said:
Worked pretty well. Now whether one should have held through the reports is another matter.

View attachment 61659

Funny, I just came here to say good call from the other day. FDC outperforming the rest of the sector.

SilverRanger · 20 February 2015

skc said:
Worked pretty well. Now whether one should have held through the reports is another matter.

View attachment 61659

Looks like Deutsche Bank analysts are also questioning the premium, and it's now shrunk to 1.3%, an easy 2.5% from yesterday

http://www.afr.com/p/novion_merger_talks_front_of_mind_YroCPNvAitJ8morauGRVSO

At the current price, the stock was valued about 3 per cent higher than the value implied in the Federation merger, the analysts said, and 14 per cent higher than their sum-of-the-parts estimate.

"With the stock trading above pricing implied by the Federation merger proposal, which we view as a compelling one for Novion, we struggle to see upside for Novion," the analysts said.

And since M/A is hot these days, I think something worth watching for is IIN/TPM, I've never seen price of TPM trading above IIN, so now even 1:1 script offer now means a 14% premium.

SilverRanger · 23 February 2015

Another great day for FDC (I'm sure everyone's happy ), closed my FDC/NVN as the premium dropped back to 0.24%.
Overall managed about 9% trading the pair since the announcement, which is roughly the damage shorting NVN in the first place, but happy to have taken my revenge!

SilverRanger · 24 February 2015

SilverRanger said:
Another great day for FDC (I'm sure everyone's happy ), closed my FDC/NVN as the premium dropped back to 0.24%.
Overall managed about 9% trading the pair since the announcement, which is roughly the damage shorting NVN in the first place, but happy to have taken my revenge!

I'm in FDC/NVN again at market close (premium 2.2%), I wonder how long this will last for, better get it while I can

VSntchr · 24 February 2015

SilverRanger said:
I'm in FDC/NVN again at market close (premium 2.2%), I wonder how long this will last for, better get it while I can

I'm in again too on this. Only a tiny size though. Previous trade made 1.67% over 8 days. Hopefully this one is quicker.

Well done on milking back your loss, thats some nifty trading.

While we are on merger arb, have you considered AMM/VOC? It has been offering some good potential...not sure if it has been reverting or not...I do know that on results day there was about 5% to be made within 30 minutes - but I was too scared! It is currently offering 2.9% for full reversion.

SilverRanger · 24 February 2015

VSntchr said:
I'm in again too on this. Only a tiny size though. Previous trade made 1.67% over 8 days. Hopefully this one is quicker.

Well done on milking back your loss, thats some nifty trading.

While we are on merger arb, have you considered AMM/VOC? It has been offering some good potential...not sure if it has been reverting or not...I do know that on results day there was about 5% to be made within 30 minutes - but I was too scared! It is currently offering 2.9% for full reversion.

No I haven't, but that's only because they weren't even on my watchlist! (they were filter out due to market cap/liquidity). But thanks for bringing that up, just checked that both are shortable, so maybe a small size will make sense. The wildcard here obviously is TPM, probably need more thoughts on this.

skc · 24 February 2015

SilverRanger said:
No I haven't, but that's only because they weren't even on my watchlist! (they were filter out due to market cap/liquidity). But thanks for bringing that up, just checked that both are shortable, so maybe a small size will make sense. The wildcard here obviously is TPM, probably need more thoughts on this.

I traded AMM/VOC on the first day, until VOC borrow became unavailable. Make sure you take dividends into account on the merger ratio. I wouldn't touch it unless it's >3% discount. A 1.5% discount is probably too thin to milk given transaction costs and time value of money.

SilverRanger · 24 February 2015

skc said:
I traded AMM/VOC on the first day, until VOC borrow became unavailable. Make sure you take dividends into account on the merger ratio. I wouldn't touch it unless it's >3% discount. A 1.5% discount is probably too thin to milk given transaction costs and time value of money.

3% looks about right!

SilverRanger · 27 February 2015

VSntchr said:
I'm in again too on this. Only a tiny size though. Previous trade made 1.67% over 8 days. Hopefully this one is quicker.

Closed mine at market close today, 1.5% for 3 days of hold, let it come again!

SilverRanger · 2 March 2015

SilverRanger said:
3% looks about right!
View attachment 61746

Following from last week...the chart looks even better than FDC/NVN!

VSntchr · 3 March 2015

Yeah it did revert well again SR, I was looking closely but didn't take the trade

I see in the WOW thread you have taken a long. Did you pair it up with WES?

SilverRanger · 3 March 2015

VSntchr said:
Yeah it did revert well again SR, I was looking closely but didn't take the trade

I see in the WOW thread you have taken a long. Did you pair it up with WES?

No I had WOW/CCL, don't think I have WOW/WES on my watchlist (probably removed for back test reasons), but added it back overnight, and makes more sense, will see if I can swap it somehow today

VSntchr · 3 March 2015

SilverRanger said:
No I had WOW/CCL, don't think I have WOW/WES on my watchlist (probably removed for back test reasons), but added it back overnight, and makes more sense, will see if I can swap it somehow today

Hmmm WOW/CCL does look quite good though - I was considering it this morning....CCL hasn't fallen...and you'd think any push on costs by WOW will be negative for CCL. Tough choice. This is almost a fundamental pairs trade rather than statistical so I am trading carefully. It's an area I am interested in expanding into...

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